Hungary

VII - Six-Pack

The ‘Six-Pack’ is a package of six legislative measures (five regulations and one directive) improving the Economic governance in the EU. The Commission made the original proposals in September 2010. After negotiations between the Council and the European Parliament, the package was adopted in November 2011 and entered into force on December 13, 2011. Part of the ‘Six-Pack’ measures applies only to the Eurozone member states (see the individual titles below).   
The ‘Six-Pack’ measures reinforce the Stability and Growth Pact (SGP), among others by introducing a new Macroeconomic Imbalances Procedure, new sanctions (for Eurozone member states) and reversed qualified majority voting. Also, there is more attention for the debt-criterion.   
(
http://ec.europa.eu/economy_finance/economic_governance/index_en.htm)

Negotiation
VII.1
What positions did Hungary adopt in the negotiation of the ‘Six-Pack’, in particular in relation to the implications of the ‘Six-Pack’ for (budgetary) sovereignty, constitutional law, socio-economic fundamental rights, and the budgetary process?

The Six-Pack was the main concern of the Hungarian EU Presidency from January 2011. According to press information the Hungarian Government was highly committed to finalize the Six-Pack during the presidency. (The deal of the member states’ Ministers of Finance on the Pack was made on the 15th of March, 2011. That day is a national holiday in Hungary, and Prime Minister Viktor Orbán held a speech in Budapest with the punch line: ‘we won’t let Brussels control us’, that enlightens the real contradiction between the two communication schemes of the Government: one to the citizens and one to the outside world.)

According to the consuetude in Brussels the state in charge of the presidency takes part in the negotiation as a neutral actor and is interested in the compromise. Hungary stuck to this practice in the case of the six pack and there was no public debate about the topic.

Eventually, the final decision on the Six-Pack was made after the Hungarian presidency finished in June 2011.

Directive 2011/85/EU       
Council Directive 2011/85/EU of 8 November 2011 on requirements for budgetary frameworks of the Member States

Implementation
VII.2
What measures are being taken to implement Directive 2011/85/EU on requirements for budgetary frameworks (required before 31 December 2013, article 15 Directive 2011/85/EU)?

On December 9, 2013 Act CCXXII of 2013[1] was accepted by the Parliament.[2] The law required the majority of the votes of the MPs, the votes divided as 248 in favor (mostly governmental), 32 against (mostly from Jobbik) and 42 abstentions (mostly from socialist party MSZP).

The act amends the Act CXCV of 2011 on State Finances to bring it in accordance with Directive 2011/85/EU.

The main amendments are the following. Macro economical and budgetary forecast have to be prepared and published by the Government at least twice a year. Middle term planning is prepared for three years (following the current year). The IT system of the Hungarian State Treasury is transformed and the changes have to be published on the website of the Treasury. A new rule is introduced concerning the budgetary planning, that has three main elements: according to the balance of the whole governmental sector the public debt has to decrease; the deficit of the balance of the whole governmental sector cannot exceed the 3% of the GDP; the structural balance cannot exceed the middle term budgetary target that is specified in the convergence programme. These rules can only be ignored temporarily if it is justified by the unfavorable developments of the economical cycle, but this divergence has to be reasoned in details in the proposal for the budgetary act.

The act also amended some of the dates of the budgetary process. According to the new rules, the minister responsible for state finances prepares and publishes the detailed plan of the budgetary planning until the 30th of June[3] and the Government presents the proposal of the budgetary act to the Parliament no later than the 15th of October.[4]

Implementation difficulties 
VII.3
What political/legal difficulties did Hungary encounter in the implementation process, in particular in relation to implications of the directive for (budgetary) sovereignty, constitutional law and the budgetary process?

On December 9, 2013 Act CCXXII of 2013[5] was accepted by the Parliament.[6] The law required the majority of the votes of the MPs. Since the Governmental coalition held the two-third majority of the seats in the Parliament the passing of the required no political consent of the opposition parties. The implementation of the directive did not caused any legal problems.

Macroeconomic and budgetary forecasts     
VII.4
What institution will be responsible for producing macroeconomic and budgetary forecasts (article 4(5) Directive 2011/85/EU)? What institution will conduct an unbiased and comprehensive evaluation of these forecasts (article 4(6) Directive 2011/85/EU)?

In the Convergence Programme, the Hungarian authorities report their intention to modify legislation to require the State Audit Office and/or the Fiscal Council to assess the macroeconomic and budgetary forecasts presented in the convergence programme and to make this assessment public.[7] However, the Fiscal Council currently in office is not an unbiased institution, as discussed in answer VII.5.

Fiscal Council  
VII.5
Does Hungary have in place an independent Fiscal Council (article 6(1) Directive 2011/85/EU: ‘independent bodies or bodies endowed with functional autonomy vis-à-vis the fiscal authorities of the Member States’)? What are its main characteristics? Does Hungary have to create (or adapt) a Fiscal Council in order to implement Directive 2011/85/EU?

There is a Fiscal Council in Hungary. It was constituted by Act LXXV of 2008[8], entering into force on 1 January 2009, in accordance with an agreement made with the International Monetary Fund. Forming the Council was one of the conditions imposed by the IMF to provide financial support to Hungary.

‘The Council’s original design established it as a body consisting of three non-partisan members independent from the government and political parties.’[9]Back then the head of the Council was appointed by the President, while two other members were appointed by the Head of the Hungarian National Bank and the Head of the State Audit Office.

A recent report from the IMF concludes that: ‘The Council had not even been in operation for two years before the newly elected government suggested significant revisions to its legal framework. This followed a period of tension between the Government and the Council. The Council criticized the Government’s medium-term budgetary plan in the 2011 budgetary bill and other aspects of the Government’s economic policy including temporary industry-specific taxes and the diversion of private-pension contributions to the state.’[10]

The legislation was amended in 2011 and the legal status of the Council is currently regulated by Act CXCIV of 2011[11], which is a normal act of Parliament, but some parts of it were passed and can only be amended by the two-third majority of the votes of the MPs.  Regulations concerning the Fiscal Council are included in these parts, because Paragraph (5) of Article 44 of the Fundamental Act of Hungary states that ‘The detailed rules of the functioning of the Budgetary Council shall be regulated in a cardinal Act of Parliament’.

The three members currently are: Head of the State Audit Office elected by the two thirds of the votes of the MPs for a 12-years-long term[12], Head of the Hungarian National Bank, appointed by the President of the Republic for a six-years-long term[13], and the President of the Fiscal Council appointed by the President of the Republic for a six-years-long term[14]. At first sight it seems to be an advisory body, but in fact, it has absolute veto over the Budget Bill.[15]

‘[The Council was s]ignificantly weakened following 2011 reorganization, which eliminated its dedicated staff and reduced its budget to near zero.’[16]

‘The Fiscal Council examines compliance with the debt rule, delivering an opinion every six months on the state of play of the budget and the trends in public debt; furthermore, it is entitled to express an opinion on any issue related to the planning and implementation of the budget, as well as to management of other public spending. The amendment results in a broader scope of authority for the Fiscal Council; the Government shall submit to the Council for an opinion, in addition to the budget, the proposals which the budget is based on, including proposals for acts establishing payment obligations (taxes), and the Fiscal Council may express an opinion on such proposals.’[17]

 

The Fiscal Council has an important part in the budgetary process: according to Article 44 paragraph 3 of the Fundamental Act of Hungary, it has to give its consent to the budgetary proposal before it can be presented to the Parliament. If the Council does not approve the proposal, the Government is required to revise it until the Council finds it in accordance with the stability rules of the Fundamental Act and the CXCIV Act of 2011 on Economic Stability.[18]

Although the Council may refuse to give consent only in specific cases (for example if the Budget Bill would allow state debt to exceed half of the GDP) its decision cannot be reviewed or annulled. If no state budget is accepted until the 31st of March of the running year, the President has the opportunity to dissolve Parliament, which gives an excessive power to the Fiscal Council. In case of a future government formed by current opposition parties, the Fiscal Council will have the opportunity to prevent the budgetary act being accepted by refusing to give its consent.[19]

Regulation No 1176/2011 on the prevention and correction of macroeconomic imbalances 
(
http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:32011R1176:EN:NOT)

MEIP difficulties     
VII.6
What political/legal difficulties did Hungary encounter and what debates have arisen, in particular about implications of the regulation for (budgetary) sovereignty, constitutional law, socio-economic fundamental rights, and the budgetary process?

There was no real debate about the issue, not even in the Parliament.

Regulation No 1175/2011 on strengthening budgetary surveillance positions    
(
http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CONSLEG:1997R1466:20111213:EN:PDF)

MTO procedure
VII.7
What changes to the rules on the budgetary processare made to accommodate the amended Medium-term Budgetary Objective (MTO) Procedure?

There has been no change to accommodate the amended Medium-term Budgetary Objective (MTO) Procedure.

European semester 
VII.8
What changes have to be made to the rules and practices on the national budgetary timeline to implement the new rules on a European Semester for economic policy coordination (section 1-A, article 2-a consolidated Regulation 1466/97)?

There were no changes to the budgetary process itself. The deadlines and steps of the Hungarian budgetary process make it possible to prepare and present a Convergence Program to the European Commission and to incorporate its recommendations into the final budgetary act. See the details of the budgetary process in the answer to question II.1.

 

MTO difficulties         
VII.9
What political/legal difficulties did Hungary encounter and what debates have arisen, in particular about implications of the regulation for (budgetary) sovereignty, constitutional law and the budgetary process?

Respect MTO     
VII.10
How is respect of the Medium-term Budgetary Objective included in the national budgetary framework (section 1A, article 2a consolidated Regulation 1466/97)?

‘In accordance with the deadline set for the application of Council Directive 2011/85/EU on requirements for budgetary frameworks of the Member States, transposition will take place in the second half of 2013. Related legislative amendments, such as the proposals for the amendment of the act on the state budget or that of the act on the economic stability of Hungary, are planned to be discussed by the Parliament in October and will be adopted by the end of 2013.’[20]

This happened on December 9, 2013 Act CCXXII of 2013[21], which includes a medium term budgetary rule. According to this rule the structural balance cannot exceed the middle term budgetary target that is specified in the convergence programme. Act CXCV of 2011 on State Finances[22] has been also amended and in Article 2 paragraph 1 point z it applies the definition of Medium-term Budgetary Objective according to the consolidated Regulation 1466/97.

Current MTO    
VII.11
What is Hungary’s current Medium-term Budgetary Objective (section 1A, article 2a consolidated Regulation 1466/97)? When will it be revised?

According to the Convergence Programme 2013[23], the MTO is set at a structural deficit of 1,7% of GDP throughout the Programme period.[24] There is no information available of an intended revision.

Adoption MTO  
VII.12
By what institution and through what procedure is Hungary’s Medium-term Budgetary Objective adopted and incorporated in the stability programme (Eurozone, article 3(2)(a) consolidated Regulation 1466/97)?

The Convergence Programme is presented by the Government, while the planning is conducted by the Ministry of National Economy. There is no formal procedure that the Government has to follow while adopting the Medium-term Budgetary Objectives.

 

Regulation No 1177/2011 on the excessive deficit procedure

(http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CONSLEG:1997R1467:20111213:EN:PDF)

EDP difficulties
VII.13
What political/legal difficulties did Hungary encounter and what debates have arisen, in particular about implications of the regulation for (budgetary) sovereignty, constitutional law and the budgetary process?

No debates have arisen.

Regulation No 1173/2011 on effective enforcement of budgetary surveillance     
(
http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:32011R1173:EN:NOT)
Sanctions
VII.14
What political/legal difficulties did Hungary encounter and what debates have arisen, in particular about implications of the regulation for (budgetary) sovereignty, constitutional law and the budgetary process?

No specific debates have arisen.

Former Article 37 paragraph (6) of the Fundamental Law of Hungary constituted a right to the Parliament to impose extra taxes if there was an obligation of the state to pay a fine, based on the decision of an international court or law enforcer. This rule was not specially made to solve the problem of the sanctions of the six pack but opened the possibility for the Government to do so in the future.

This provision was removed from the Fundamental Law by the Fifth Amendment of the Fundamental Law of Hungary on 23 September 2013, mostly because of the heavy criticism on this rule coming from the European Commission, according to which the possibility of these extra taxes would cause a strong insecurity in the rule of law in Hungary.[25]

General changes     
VII.15
What further changes have to be made to the rules on the budgetary process in order to comply with the Six-Pack rules?

Not relevant for Hungary.

Miscellaneous
VII.16
What other information is relevant with regard to Hungary and the Six-Pack?

No further relevant information.

[1]The text of the act is available here: http://www.complex.hu/kzldat/t1300222.htm/t1300222.htm

[2] http://www.parlament.hu/internet/plsql/ogy_irom.irom_adat?p_ckl=39&p_izon=13216

[3] Article 13 paragraph 1 of Act CXCV of 2011 on State Finances

[4] Article 22 paragraph 2 of the amended Act CXCV of 2011 on State Finances

[5]The text of the act is available here: http://www.complex.hu/kzldat/t1300222.htm/t1300222.htm

[6] http://www.parlament.hu/internet/plsql/ogy_irom.irom_adat?p_ckl=39&p_izon=13216

[7] The Convergence Program of Hungary, 2012

[8] The text of the act is available here: http://www.complex.hu/kzldat/t0800075.htm/t0800075.htm

[9] Case Studies of Fiscal Councils – Functions and Impact, International Monetary Fund, July 16, 2013

[10] Case Studies of Fiscal Councils – Functions and Impact, International Monetary Fund, July 16, 2013

[11] The text of the act is available here: http://net.jogtar.hu/jr/gen/hjegy_doc.cgi?docid=A1100194.TV

[12]Article 43 paragraph 2 of the Fundamnetal Act of Hungary

[13]Article 41 paragraph 3 of the Fundamnetal Act of Hungary

[14]Article 44 paragraph 4 of the Fundamnetal Act of Hungary

[15]The English webpage of the Fiscal Council: http://www.parlament.hu/kt/kt_eng.htm

[16] MarcoCangiano, Teresa R Curristine, Michel Lazare (editors): Public financial management and its emerging architecture, 2013, page 212

[17] The Convergence Program of Hungary, 2012

[18] See Article 44 paragraph 3 of the Fundamental Act of Hungary, Article 24 of Act CXCIV of 2011 on Economical Stability and Article 22 paragraph 6 of Act CXCV of 2011 on State Finances

[19] Article 23 to 26 of Act CXCIV of 2011 on Economical Stability

[20] Convergence Programme of Hungary 2013

[21]The text of the act is available here: http://www.complex.hu/kzldat/t1300222.htm/t1300222.htm

[22]The text of the act is available here: http://net.jogtar.hu/jr/gen/hjegy_doc.cgi?docid=A1100195.TV

[23]Convergence Programme of hungary 2013, available at http://ec.europa.eu/europe2020/pdf/nd/cp2013_hungary_en.pdf

[24] Additional document to the 2013 budgetary bill: http://www.parlament.hu/irom39/04365/adatok/fejezetek/00_kitekintes.pdf

[25]See for example in Hungarian Helsinki Committee, Eötvös Károly Policy Institute and Hungarian Civil Liberties Union: Comments on the Fifth Amendment to the Fundamental Law of Hungary, 18 Sptember 2013, available here: http://helsinki.hu/wp-content/uploads/NGO_comments_on_the_5th_Amendment_to_the_Fundamental_Law_October2013.pdf